Measuring Mutual Fund Risk Beyond Standard Deviation

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Mutual Fund (MF) investing is an incredible strategy to increase your financial situation, but it carries some risk. When someone wants to make more money, they occasionally forget about these risks. It’s critical to remember that while MFs might support your financial growth, their value can also decline. 

In this blog, we will look at various factors beyond the typical standard deviation to help simplify the complex world of mutual fund risk rating. Let’s get going!

Going Deeper: Factors Beyond Standard Deviation

Some of the most common factors that increased mutual fund risks include:

  • Managerial Expertise

The individual or team in charge of a MF can substantially impact its performance and risk. It is critical to evaluate the fund manager’s experience and track record. Even in tumultuous times, a smart manager can negotiate chaotic markets and make wise judgments, thereby lowering risk.

  • Fund Objectives

Examine the stated aims and tactics of a fund. Is it in line with your investing objectives? If a fund’s objectives do not fit your requirements, even a low standard deviation will not make it a good investment.

Also Read: Selecting the Right Mutual Fund for Your Investment Goals

  • Economic and Market Conditions

Understanding the bigger economic and business situations is critical. Variables such as interest rates, inflation, geopolitical events, and global economic trends can influence a fund’s performance. Consider how these factors may impact the fund you are considering.

  • Liquidity

The ease with which you may purchase or sell shares in a fund is referred to as liquidity risk. Illiquid money might provide difficulties during periods of market stress. Understanding a fund’s liquidity profile can help you evaluate that fund’s risk under various market conditions.

  • Regulatory Environment

Regulations may have an impact on MF operations. Regulation changes may affect a fund’s investing approach, costs, or reporting obligations. You may prepare for future changes in risk by keeping up with regulatory developments.

A 360-Degree View of Mutual Fund Risk

To accurately assess MF risk in its entirety, we must use a 360-degree approach. This entails taking into account not just quantitative measurements but also qualitative elements that might significantly influence a fund’s risk profile.

Consider assessing a mutual fund like a puzzle. Quantitative indicators like standard deviation, beta, and Sharpe ratio are important jigsaw pieces, but they represent only one element of the puzzle. The jigsaw is completed by qualitative considerations such as the fund manager’s experience, alignment with your aims, economic conditions, liquidity, and the regulatory landscape.

Also Read: The Impact of Inflation on Mutual Fund Returns


Every investor has specific financial objectives, a level of comfort with risk, and a schedule for making investments. It’s crucial to properly evaluate the dangers while investing in MFs to make wise decisions. This guarantees that your assets correspond to your financial goals and risk tolerance.

Even if the standard deviation is still a helpful metric for determining the risk of MFs, it shouldn’t take centre stage. To make wise financial decisions and effectively manage risk, go beyond the statistics. 

Consider the fund manager’s background, objectives, financial situation, liquidity needs, and regulatory obligations. A thorough understanding of the types of mutual funds and their associated risks enables you to create an informed investment strategy specific to your financial situation.

Also read more informational blogs:

How to Analyse Mutual Fund Performance: Key Metrics and Indicators

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